Zynga agreed to buy OMGPOP, the maker of massive Pictionary-like hit Draw Something, winning out over several other large gaming companies who had taken a look at the deal. Zynga didn’t disclose the price but we’re hearing $180 million upfront plus a $30 million earnout. The announcement confirms the original scoop I had on this deal on Monday.
OMGPOP chief executive Dan Porter becomes a general manager and vice president of Zynga New York and the company’s employees will join Zynga. Draw Something has been an incredible turnaround for OMGPOP, which had struggled to find a hit on its own destination site and then on the Facebook platform. Up until Draw Something, OMGPOP had 20 million registered users to date, Porter said. But when OMGPOP brought Draw Something to iOS and Android a little over a month ago, the title just took off like a rocket ship, accumulating 35 million downloads and 1 billion drawings.
So why this price? It’s complicated. On the one hand, if Zynga lost, it was probably going to do a “Draw With Friends” anyway. That would have split the available market with OMGPOP, a situation we’ve seen when Zynga has launched titles like Dream Zoo, Dream Pet House and Dream Heights.
Plus, OMGPOP has only had just over a month of runway to evaluate its earnings potential and the mobile gaming market is notoriously fickle. Games that have gone up like Tap Zoo, which held a top 10 grossing rank for about a year, have come down. Many other game developers that were in early stage acquisition talks with Zynga last year got too aggressive with their demands, so Zynga just went out and made similarly-themed games, torpedoing their momentum.
Also, if you look at the way Draw Something monetizes, its monetization model is front-loaded with paid app downloads and durable in-app purchases like color packs. In contrast, many other Zynga games have in-app purchases that are disposable like virtual currency that gets spent.
On the other hand, I’ve never seen something with the trajectory of “Draw Something,” with about 15 million daily active users in under six weeks. David Ko, Zynga’s chief mobile officer, said on the call today that there have been more than 1 billion drawings done since the game launched. It’s conceivable that the company could’ve parlayed the brand into many other areas just the way that Rovio has done with its beloved Angry Birds franchise. There were plenty of funding offers on the table. Simon Khalaf, the chief executive of mobile analytics company Flurry, said to me and Business Insider’s Henry Blodget that OMGPOP effectively left $800 million on the table by selling to Zynga.
As for Zynga, this is probably their biggest acquisition to date. The company gets to prove to investors that it is putting its foot on the gas pedal and isn’t losing momentum on mobile platforms, a key part of its strategy in diversifying off Facebook.
Zynga’s M&A track record is mostly in acquiring small teams for a talent-price range of $5 to $20 million. But it did make a fantastic deal in late 2010 to buy Words With Friends-maker Newtoy for $53.3 million in cash and stock — a price that looks positively low in retrospect. After buying Newtoy, Zynga was able to double Words With Friends’ daily active users in 120 days. By the time it had filed for a public offering, Zynga had grown its mobile footprint tenfold, largely on the back of Newtoy’s titles.